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The week kicked off on a positive note as investors rushed to buy the dips from last week’s correction. While the European indices remain under the pressure of tariffs, there are now two distinct camps regarding whether the major US indices should return to fresh all-time highs or whether a further correction is in order.

The bullish camp argues that earnings have been stronger than expected, and that rising rate cut prospects from the Federal Reserve (Fed) are sufficient to send major US indices to fresh records, with optimism potentially echoing across global financial markets.
The bearish camp hears these arguments but highlights that strong US earnings were partly due to a softer dollar; that while technology companies eked out a 26% increase in profits, the rest of the market posted just 4% growth; and that rate cuts are not necessarily justified – even with a deteriorating economic outlook – while inflation remains hot and at risk of further rising, especially as some companies have announced they will be passing part of the tariff costs onto clients.

What’s clear, however, is that retail investors seem to be running the bull show, as CFTC data continues to show strong net negative positioning among institutional traders. And that’s understandable – traditional investors don’t like uncertainty, and there’s nothing more certain than political uncertainty, monetary uncertainty, geopolitical uncertainty, and trade uncertainty on the horizon.

But hey, the Fed has proven capable of fighting any market weakness with its juicy policies, and Donald Trump will likely form a committee that reflects his vision of the perfect central bank: one that cuts rates.

Speaking of that, the Fed is expected to cut rates twice before the end of the year, with the first cut now broadly priced in for September. Fed funds futures now imply a more than 90% chance for a September cut, versus less than 40% last week, before the dramatic US jobs data landed and resulted in the firing of the BLS chief.

Investors will be watching the ISM and PMI data today. Softer-than-expected figures could further fuel dovish Fed expectations and support equity valuations, despite rising price pressures, while stronger-than-expected data will likely do little to reverse expectations for a September cut. On the contrary, any bright spot would support the idea that the US economy is holding up well despite tariffs.

In summary, we’re in a blind spot where investors are capable of seeing the glass half full, whatever the data suggests. And even though the equity rally barely matches the global headlines, the rally is on. The S&P 500 printed its best day since May. Futures are in the green this morning, with Nasdaq futures leading gains after Palantir announced better-than-expected Q2 results after the close yesterday, sending the share price some 4.5% higher in after-hours trading.

AMD is due to report after today’s close and is also expected to announce strong quarterly numbers on robust AI demand. Note that despite robust results, some leading chipmakers – including Arm Holdings and Qualcomm – failed to bring investors on board. For AMD, which has been the best-performing chip stock of 2025 - beating expectations alone may not be enough; investors will also require a strong outlook.

In the bond markets, calm reigns ahead of US 3-, 10- and 20-year bond auctions. Here too, investors seem to have digested the explosive US debt news of a few weeks ago. The US 10-year yield is down to 4.20%. Beyond the US, the Japanese 10-year yield has eased below 1.50%, and a gauge of European 10-year debt yields has fallen to a two-week low. Even though the long-term outlook remains positive for DM yields on the back of rising debt worries, investors don’t seem disturbed by the rising trend.

In FX, the US dollar consolidates losses following a sharp post-NFP selloff. The outlook, which had turned slightly positive since early June due to crowded short positions, is now turning neutral, as trade tensions, weak economic data, and rising dovish Fed expectations support the bears.

As such, the EURUSD is testing the 50-DMA to the upside. Strong PMI data could help clear resistance. Cable rebounded from a critical Fibonacci support last week and remains in a bullish consolidation zone, as the 25bp cut from the Bank of England (BoE) later this week is already priced in. Hence, the dovish shift in Fed pricing is currently weighing more heavily on sentiment than the BoE’s stance.

Plus, Brits are facing rising inflation in the coming months, which could result in a cautious cut from the BoE this Thursday. If that’s the case, Cable could remain in the medium-term bullish consolidation zone above the 1.3140 mark – the major 38.2% Fibonacci retracement of this year’s rally.

In energy, crude oil extends losses following OPEC’s decision to increase production by 547,000 barrels per day from next month, fueling expectations of a surplus in H2.
Critical support is seen near the $65.20–$65.30 per barrel area, which shelters the 100-DMA and the major 38.2% Fibonacci retracement of the year-to-date decline. A sufficiently soft US dollar could help keep oil prices in the bullish consolidation zone.

Elsewhere in commodities, a weaker dollar and lower yields are turning supportive of gold prices amid ongoing trade and geopolitical uncertainties. While strong resistance is seen into the $3,400 per ounce level, the outlook for the precious metal remains positive, and a further rise toward $3,500 per ounce looks increasingly plausible.

In focus today

Today, the US ISM services PMI is due, with consensus expecting an increase to 51.5 in July from 50.8 in June. The preliminary services PMI for July surprised to the upside, rising to 55.2 from 52.9, supported by strong domestic service demand holding up well. However, recent growth has been overly reliant on the services economy as manufacturing business conditions deteriorated for the first time this year.

Economic and market news

What happened overnight

In China, S&P services PMI rose to 52.6 in July, up from 50.6 in June, marking the fastest expansion in 14 months. The rebound reflects stronger domestic demand and increased activity in export-related services, helping to offset ongoing weakness in manufacturing and underpinning the broader economic recovery.

What happened over yesterday

In the euro area, the August Sentix indicator dropped sharply to -3.7, well below expectations of 8.0. As the first indicator reflecting investors' initial assessment of the EU-US tariff deal, it offered a view of the sentiment in the euro area. The data revealed worsening perceptions of both the current economic situation and future expectations for the euro area.

Equities: Equities delivered a surprisingly strong comeback yesterday, reversing most of Friday's losses. While this reaction aligns broadly with what we discussed in Monday's Morning Espresso, it still surprises us slightly that the market so decisively ignored the underlying signal from Friday's notably weak non-farm payrolls report. In other words, equity markets are showing little concern at this point about the potential softening in the US labour market.

Digging deeper into equities, the rally was led by cyclicals and small caps, underlining a clear "risk-on" tone in yesterday's session. One might be tempted to label this a classic Goldilocks move, though we lean more toward the view that we are seeing a degree of exuberance in equities at present.

In the US yesterday, Dow +1.3%, S&P 500 +1.5%, Nasdaq +1.9%, Russell 2000 +2.1%.

Asian equities are broadly higher this morning, and futures in both Europe and the US point to a stronger open.

FI and FX: There was a significant decline in European government bond yields yesterday and the spread between the core-EU and periphery tightened, where the 10Y Italian-German yield spread is once again touching 80bp. The US bond market could not follow the trend from Friday and yields just dipped a few bp ahead of the sale of 3Y, 10Y and 30Y government bonds during the week. There were modest movements in US Treasuries in Asian trading hours this morning.

Daily Pivots: (S1) 1.1549; (P) 1.1573; (R1) 1.1596; More...

EUR/USD retreated after hitting 55 4H EMA (now at 1.1573), and intraday bias is turned neutral first. On the upside, above 1.1596 will affirm the case that correction from 1.1829 has completed with three waves at 1.1390. Further rally should then be seen to retest 1.1788/1820 resistance zone. On the downside, break of 1.1390 will resume the correction to 38.2% retracement of 1.0176 to 1.1829 at 1.1198 instead.

In the bigger picture, rise from 0.9534 long term bottom could be correcting the multi-decade downtrend or the start of a long term up trend. In either case, further rise should be seen to 100% projection of 0.9534 to 1.1274 from 1.0176 at 1.1916. This will remain the favored case as long as 1.1604 support holds.

Daily Pivots: (S1) 146.60; (P) 147.35; (R1) 147.82; More...

Intraday bias in USD/JPY remains neutral for the moment. On the upside, above 148.07 will bring stronger rebound back to retest 150.90. Break there will resume the rebound from 139.87. However, on the downside, firm break of 145.84 support will argue that whole rise from 139.87 might have already completed. Deeper fall should then be seen to 142.66 support for confirmation.

In the bigger picture, price actions from 161.94 (2024 high) are seen as a corrective pattern to rise from 102.58 (2021 low). Decisive break of 61.8% retracement of 158.86 to 139.87 at 151.22 will argue that it has already completed with three waves at 139.87. Larger up trend might then be ready to resume through 161.94 high. In case the corrective pattern extends with another fall, strong support is expected from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound.

Daily Pivots: (S1) 1.3249; (P) 1.3290; (R1) 1.3326; More...

Intraday bias in GBP/USD remains neutral for the moment. On the upside, sustained break of 1.3363 support turned resistance will indicate that the fall has completed as a three-wave correction. Further rally should then be seen back to 1.3587 resistance next. Nevertheless, sustained trading below 38.2% retracement of 1.2099 to 1.3787 at 1.3142 will target 61.8% retracement at 1.2744.

In the bigger picture, up trend from 1.3051 (2022 low) is in progress. Next medium term target is 61.8% projection of 1.0351 to 1.3433 from 1.2099 at 1.4004. Outlook will now stay bullish as long as 55 W EMA (now at 1.3049) holds, even in case of deep pullback.

Daily Pivots: (S1) 0.8043; (P) 0.8070; (R1) 0.8111; More….

USD/CHF recovered after drawing support from 55 4H EMA (now at 0.8053) and intraday bias is turned neutral first. On the downside, below 0.8020 will affirm that case that corrective bounce from 0.7871 has completed at 0.8170. Bias will be back on the downside for 07871/7910 support zone. On the upside, though, break of 0.8170 will resume the rise from 0.7871 to 38.2% retracement of 0.9200 to 0.7871 at 0.8379 instead.

In the bigger picture, long term down trend from 1.0342 (2017 high) is still in progress. Next target is 100% projection of 1.0146 (2022 high) to 0.8332 from 0.9200 at 0.7382. In any case, outlook will stay bearish as long as 0.8475 resistance holds.

Daily Pivots: (S1) 0.6454; (P) 0.6472; (R1) 0.6485; More...

Intraday bias in AUD/USD remains neutral for the moment, and risk will stay on the downside as long as 0.6528 resistance holds. Fall from 0.6624 short term top is seen as at least correcting the rally from 0.5913. Below 0.6418 will target 38.2% retracement of 0.5913 to 0.6624 at 0.6352. Nevertheless, break of 0.6528 will dampen this bearish case, and bring retest of 0.6624 high instead.

In the bigger picture, there is no clear sign that down trend from 0.8006 (2021 high) has completed. Rebound from 0.5913 is seen as a corrective move. While stronger rally cannot be ruled out, outlook will remain bearish as long as 38.2% retracement of 0.8006 to 0.5913 at 0.6713 holds. Nevertheless, considering bullish convergence condition in W MACD, even in case of another fall through 0.5913, downside should be contained above 0.5506 (2020 low).

Daily Pivots: (S1) 1.3760; (P) 1.3778; (R1) 1.3796; More...

Intraday bias in USD/CAD remains neutral at this point. On the upside, break of 1.3878 bring stronger rally, but upside should be limited by 1.4014 cluster resistance (38.2% retracement of 1.4791 to 1.3538 at 14017) to complete the correction. On the downside, sustained trading below 55 4H EMA (now at 1.3755) will bring retest of 1.3538 low.

In the bigger picture, price actions from 1.4791 medium term top could either be a correction to rise from 1.2005 (2021 low), or trend reversal. In either case, further decline is expected as long as 1.4014 resistance holds. Next target is 61.8% retracement of 1.2005 (2021 low) to 1.4791 at 1.3069.

Daily Pivots: (S1) 0.9324; (P) 0.9342; (R1) 0.9372; More....

Intraday bias in EUR/CHF remains neutral with focus back on 0.9361 resistance. Firm break there will suggest that corrective pattern from 0.9445 has already completed at 0.9265. Further rise should then be seen to 0.9428 resistance for confirmation. However, below 0.9265 will bring another fall back to retest 0.9218 low.

In the bigger picture, the down trend from 0.9204 (2018 high) might still be in progress considering that EUR/CHF is staying well inside the long term falling channel. However, with bullish convergence condition in W MACD, downside position should be limited in case of another fall. Instead, firm break of 0.9660 resistance will be an important sign of medium term bullish trend reversal.

Daily Pivots: (S1) 0.8689; (P) 0.8709; (R1) 0.8732; More...

Range trading continues in EUR/GBP and intraday bias remains neutral. Consolidations could extend below 0.8572 short term top. But in case of another fall, downside should be contained by 38.2% retracement of 0.8354 to 0.8752 at 0.8600. On the upside, firm break of 0.8752 will resume the rise from 0.8354 towards 0.8867 fibonacci level.

In the bigger picture, the structure from 0.8221 medium term bottom are not impulsive enough to suggest that it's reversing the down trend from 0.9267 (2022 high). But even if it's a correction, further rise is expected to 61.8% retracement of 0.9267 to 0.8221 at 0.8867. This will remain the favored case as long as 55 W EMA (now at 0.8493) holds.